Dynamic growth in private consumption and exports have clearly boosted the US economy in the second quarter. An initial estimate pegs considerable growth of 4.1 percent in gross domestic product (GDP) for the year, which matches expectations. This was preceded by a subdued start to the year; GDP growth in the first quarter was only half as much as the previous year, largely due to the extreme winter storms. The latest data by no means stands in the way of the US Federal Reserve’s moderate monetary tightening course – on the contrary, it supports it. We anticipate two further interest rate hikes this year.
By international standards, the US certainly appears to be disengaging increasingly from the economy in Europe. The US economy is likely to have kept up the strong pace in the current quarter, with hardly any signs of faltering momentum. Opinion polls among the industry and consumers continue to point towards excellent sentiment. This is despite the concern reflected in some sub-questions about the festering trade conflict.
On balance, the US economy will grow by around three percent this year. Once again, private consumption provided important impetus for the strongest economic growth in three years. Investments also demonstrated outstanding strength. Enterprises are likely to continue investing heavily in new machinery and in their IT infrastructure. This is also confirmed by second quarter data. Investments in machinery and equipment made a visible contribution to economic growth for the sixth consecutive quarter, with activity focused again on machines for processing information and money pouring into software or research & development as well. While this has not just manifested itself since the corporate tax cuts, it no doubt provided a continued boost.
The revival of the commercial construction business is also likely to have enjoyed additional impetus from the tax reform. Following a long-lasting slump, commercial property made a contribution to overall economic growth for the second time running of 0.4 percentage points. According to the statistics authority, the 1.1 percentage boost in foreign trade in Q2 is due to soya bean exports being brought forward. Surprisingly weak imports, which would have otherwise diminished this positive effect, also made a contribution here.
The US economy continues to be exposed to the risk that the trade conflict might escalate with China. Many American companies are also probably monitoring the renegotiation of the NAFTA with Canada and Mexico very closely. However, investment activity is not expected to cease abruptly, especially given Trump’s very pro-business stance. Regulations are therefore expected to be reduced further and numerous environmental conditions have already been eased. As stated earlier, though, the trade conflict has not yet been resolved.